SAFE vs convertible note: differences, with a worked example

A friend of your parents offers you €50,000 for your startup. You’re thrilled. Then she asks the question that stalls most first deals: so what is the company worth? Neither of you knows. Pick a number today and one of you will turn out to be wrong.

That’s the argument the SAFE and the convertible note were invented to postpone, and the SAFE vs convertible note choice is one of the first legal decisions a founder faces when raising. In about nine minutes you’ll know how each works, what the cap and the discount do to an investor’s shares (with numbers), and what founders in Italy sign instead. New to funding? Start from our beginner’s map from zero to a first round.

What is a SAFE, in plain words?

A SAFE is a short contract with one idea in it. The investor sends you money now. You promise that when you later sell shares to a professional investor at a fixed price, which is called a priced round, the SAFE turns into shares at a price that rewards the early believer. Until that day nothing happens. No shares are issued, nobody gets a vote, and there is no loan to repay.

Carolynn Levy created it at Y Combinator in 2013, and YC says almost all of its startups, and countless others, use it as the main instrument for early-stage fundraising. The first version was pre-money. In 2018 YC released the post-money SAFE, where the investor’s ownership is measured after all the SAFE money is counted but before the new money of the priced round. Founders and investors can then, in YC’s words, “calculate immediately and precisely” how much of the company has been sold.

The arithmetic is friendly. Say an investor puts €250,000 into a post-money SAFE with a €5 million cap: she owns 5% of the company before the new round arrives (250,000 ÷ 5,000,000). Sign three like that and you’ve sold 15% before any fund shows up.

Y Combinator’s own deal shows the instrument at work. It invests $500,000: $125,000 on a post-money SAFE for 7%, and $375,000 on an uncapped SAFE with a most-favoured-nation (MFN) clause, which hands the investor the terms of any later, better SAFE.

What is a convertible note?

A convertible note is a loan that is meant to be repaid in shares. The investor lends you €250,000. The note carries interest, usually a few percent a year (CRV’s guide quotes 4 to 8%), and a maturity date, commonly 18 to 36 months away. If a priced round happens first, principal plus interest converts into shares, normally with a cap or a discount.

If it doesn’t, the maturity date arrives and the lender may ask for the money back. In practice, CRV notes, an extension is the most common outcome. Still, you’re now talking to a creditor, not a shareholder. Anyone who has ever owed money to a friend knows how that changes the tone. CRV suggests notes for bridges between priced rounds, or when an investor wants the protection of debt.

SAFE vs convertible note: what actually differs?

	SAFE	Convertible note
What it is	A contract for future shares, not a loan	A loan that converts into shares
Interest	None	Yes, usually simple interest that converts with the principal
Maturity date	None: it stays open until a triggering event, usually a priced round	Yes, often 18 to 36 months
If no round happens	Nothing is due, the SAFE waits	Repay, extend or renegotiate at maturity
Price protection	Valuation cap, discount or both (MFN if uncapped)	Valuation cap, discount or both
Typical use	Pre-seed and early seed rounds	Bridge rounds, or when an investor wants debt protections
Negotiation	Short standard form; usually only the cap is negotiated	Longer, with more terms to discuss (rate, maturity, security)

One statistic explains why the SAFE won the argument in the US. On Carta, 93% of pre-seed rounds in Q2 2026 were SAFEs (95% of the money), 91% of those SAFEs were post-money, and convertible notes were a small, shrinking share. In 73% of SAFEs the cap was the only price term. In another 21% it came with a discount.

How do the valuation cap and the discount work? A worked example

Both reward the investor for taking the biggest risk. The cap is a ceiling: whatever the next round’s price, the SAFE converts as if the company were worth no more than the cap. The discount is a percentage off the price the new investors pay. If a SAFE has both, the investor gets whichever gives more shares. A cap can be pre-money or post-money, and our guide to pre-money vs post-money valuation explains the difference.

Imagine a Milan startup with 10,000,000 shares, counting the founders’ and a small option pool (an Italian SRL would count percentages of capital, but the maths is the same). A business angel puts €250,000 into a post-money SAFE with a €5 million cap and a 20% discount. The cap fixes her stake at 5%, which works out as 526,316 new shares at €0.475 each.

1. Eighteen months on, a fund leads a €2 million round. Pre-money valuation: €8 million. Divide that by 10,526,316 shares (the founders’ 10,000,000 plus the SAFE’s 526,316) and the new price is €0.76 a share.
2. Take 20% off that and the discount price is €0.608.
3. The cap price, €0.475, is lower still, so the cap wins. The angel converts €250,000 into 526,316 shares.
4. At the round’s price those shares are worth €400,000, 1.6 times her money. After the round she owns 4.0%, the fund 20.0%, and the founders and pool 76.0%.

Change one thing. If the round were priced at only €0.40 a share, the discount price would be €0.32, below the cap price, and the discount would win: the same €250,000 would buy about 781,000 shares. The cap only bites when the next round is expensive.

Swap the SAFE for a convertible note of the same €250,000, with 6% simple interest and a €5 million pre-money cap. A year on, €265,000 converts (the €15,000 of interest converts too) at €0.50 a share, which is €5,000,000 ÷ 10,000,000. You get 530,000 shares against the SAFE’s 526,316. Hardly a gap. The real difference shows up at month 24 with no round: the note has grown into a €280,000 claim on the company, while the SAFE is still waiting. All of this is invented, and simplified. Real forms spell out the share count in far more detail, so ask a lawyer to run it on your cap table.

What do founders in Italy use instead of a SAFE?

The SAFE was written for US companies and their shares. An Italian SRL has quotas, not shares (art. 2468 of the Civil Code), and new quotas come from a capital increase that the shareholders’ meeting approves in front of a notary (art. 2480). Existing partners have a right to subscribe in proportion to their stake, and offering quotas to outsiders needs a clause in the statuto (art. 2481-bis). That’s why the US form doesn’t drop in as it is.

One route is a convertible loan (finanziamento convertibile). It’s a real loan, with interest and a maturity date, and the lender may convert the debt into quotas at the next round, usually at a discount or under a cap. Conversion means a capital increase, so the shareholders’ resolution and the notary come into it.

Innovative startups set up as SRLs have a second tool: Article 26 of Decreto-legge 179/2012 lets them issue participating financial instruments (strumenti finanziari partecipativi, SFP). An SFP is not a SAFE with another name, so here too the paper is written case by case.

Then there’s the template route. Italian Tech Alliance and Growth Capital, together with ten law firms, published the Italian SAFE 2.0, in Italian and English with an adhesion letter. According to the presentation reported by Startup-News in October 2024, the parties only need to agree on the discount, the cap, an expiry date, the valuation at expiry and the features of the round that triggers conversion. That expiry date is a notable change from the US original, which has none.

For money from relatives and friends, where the same choices appear on a smaller scale, our guide to the first €50,000 from friends, family and angels covers the options. Whatever you pick, have a lawyer or notary draft it. The paper has to fit your statuto and your cap table.

Your checklist before you sign

• Write the cap down as a percentage: investment ÷ post-money cap. Do it for every SAFE you’ve already signed.
• Add them up. Three of €250,000 each on a €5 million cap, and 15% of the company is already spoken for.
• For each SAFE, look up whether the cap is pre-money or post-money, since the same number buys a different stake.
• For any note or loan, write down the interest rate and the maturity date, and find out what happens if you can’t repay.
• In Italy, find out who approves the capital increase, whether your statuto lets outsiders subscribe, and what the notary will want to see.
• Have a lawyer run the conversion on your real cap table. Our guide to the term sheet covers what comes next, and the one on pre-revenue startup valuation helps you choose the cap.

Not sure how this fits the rest of your raise? Our guide to raising capital for a startup in Italy is the hub, and the one on startup funding stages shows where pre-seed and seed sit.

This article is general information, not legal or tax advice. Contracts and company law change: ask a lawyer or notary to review any SAFE, loan or term sheet before you sign.